ABUJA – The Federal Inland Revenue Service (FIRS) has laid out an ambitious road map, projecting a leap in revenue collection from Value Added Tax (VAT) to five trillion naira shortly.
The goal was set against the backdrop of concerns raised by the European Union about the prevalent issue of tax evasion in Nigeria, which they attribute to the opacity of the tax administration process.
Matthew Osanekwu, Head of the Policy and Legislation Division at FIRS, expressed confidence during a press conference in Abuja on Thursday: “I can assure you that VAT will surge from the current N3.6 trillion to five trillion naira as we move forward.”
This optimistic projection stems from comprehensive reviews and sweeping reforms within the country’s tax framework.
The announcement coincided with the celebration of the successes of the Support Programme for Tax Transition in West Africa (PATF), an initiative funded by the European Union designed to fortify domestic tax administration and foster improved cooperation within the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (WAEMU) regions.
Despite possessing one of the West African region’s lowest VAT rates, Nigeria has demonstrated a consistent enhancement in its tax collection efforts.
Highlighting this progress, Osanekwu mentioned that Nigeria’s VAT collectionhas progressively climbed from N1.1 trillion in 2019 to N3.6 trillion in 2023.
He alluded to ongoing discussions about revisiting the current VAT rate, which was raised from an initial five per cent to 7.5 per cent, contributing to the uptick in revenue.
“Discussions are in progress with the Presidential Committee on Fiscal Policy and Tax Reforms, as well as the Ministry of Finance, regarding the necessity of revising the VAT rate to be in line with ECOWAS standards,” Osanekwu elaborated.
He also pointed out that FIRS has broadened its tax collection ambit to encompass non-resident suppliers and is rigorously examining the tax exemptions extended to certain enterprises.
“We are in the final stages of reviewing our exemptions, and we anticipate presenting these recommendations to the tax reform committee for consideration of legislative changes,” he clarified.
In addition, Osanekwu revealed that the FIRS is performing a VAT gap analysis to pinpoint and rectify areas where VAT collection could be improved.
“By examining our tax policy, law, and collection procedures, we aim to identify our VAT gap and, through this informed approach, reach our five trillion naira target,” he assured.
Massimo De Luca, Head of Cooperation at the Delegation of the European Union to Nigeria, commended the accomplishments of the PATF initiative and called on the Nigerian government to increase transparency in the management of tax revenues.
De Luca observed, “Tax evasion often occurs when taxpayers do not see the benefits their contributions yield. In Europe, high levels of tax compliance are partly due to the quality of public services rendered and the clear accountability for the use of tax funds.”
Dalhat Kamal, Deputy Director of Tax Policy at the Federal Ministry of Finance, warned that a simple increase in the VATrate might not directly translate to higher VAT revenue.
“A tax system must be accessible to draw more individuals into the tax base,” Kamal stated. “The efficacy of VAT collection depends not only on the rate but also on its prudent administration. Without meticulous management, we cannot fulfil the objectives of establishing the rate.”
Kamal further underscored the need to review the handling of tax expenditures to ensure that the nation’s fiscal strategies are meeting their intended targets.
Andrew Onyeanakwe, a tax specialist and member of the PATF steering committee, shed light on the program’s contributions.
“The PATF has been instrumental in creating regional tax management tools and standardizing the approach to evaluating tax expenditures among ECOWAS Member States. It has also set up a system for the monitoring and assessment of ECOWAS’s fiscal transition and harmonized VAT legislation across its member states,” he explained.
